Latvia: Economic growth remains strong in Q2, despite a slight downward revision
August 31, 2017
According to revised data released by the Statistical Institute on 31 August, GDP increased 4.0% over the same quarter last year in Q2 (originally reported: +4.1% year-on-year). This performance is on par with that of Q1, which had up until then had the fastest growth rate since Q2 2012. Quarter-on-quarter, the economy grew at a revised 1.2% pace in seasonally-adjusted terms in Q2 (originally reported: +1.3% quarter-on-quarter). This represented a slowdown from Q1’s revised 1.7% growth (originally recorded: +1.6% qoq).
Q2’s reading mostly reflects a surge in investment growth that was partially offset by a sharp deterioration in the external sector due to rising imports. Fixed investment grew an impressive 26.1% in Q2 compared to the same quarter of the previous year (Q1: +8.6% yoy), its fastest pace since September 2011. Following Q1’s growth, fixed investment has remained in expansionary territory so far this year, turning around a dire 2016 which saw annual contractions in every quarter. Q2’s large increase was primarily the result of a base effect and the accelerated absorption of European Union structural and investment funds. Notably in Q2, intellectual property investment, a sub-component of fixed investment, leapt forward at a rate of 47%. Meanwhile, private consumption, the largest component of the Latvian economy, increased 4.3% in Q2 (Q1: +5.6% yoy), with government consumption growth outpacing that of private consumption (Q1: +3.5% yoy; Q2: +5.0% yoy).
On the external front, exports of goods and services increased 5.1% annually in Q2, a slowdown compared to Q1’s growth of 8.0%. By contrast, imports of goods and services grew at an accelerated pace of 8.4% (Q1: +6.9% yoy). On balance, the external sector detracted from Q2’s annual growth performance by 2.3 percentage points, contrasting with the 0.4 percentage-point contribution it made in Q1.
Author: Edward Gardner, Economist